The company will eliminate 5,800 posts, equal to 15 percent
of its workforce in defense and space, and shutter facilities in
Germany, France, Spain and the U.K., EADS said yesterday.
Underlining the divergent fortunes within the group, some
positions will shift to Airbus to support rising output.

Chief Executive Officer Tom Enders called the reductions
normal business practice in a mature company confronted with
shrinking demand, and said EADS may be forced to deepen cuts in
a few years should the Eurofighter Typhoon combat plane fail to
win exports or if unions reject the measures.

“If we can’t realize the synergies inherent in the new
combination of space and defense then certainly this will not
have been the last restructuring,” Enders said today.
“Everybody in defense is adapting. We’re a very normal company,
we’re doing the same.”

No Choice

EADS, based in Toulouse, France, fell as much as 68 cents,
or 1.4 percent, to 49.81 euros, and traded at 49.83 euros as of
12:01 p.m. The stock has advanced 69 percent this year, putting
it on track for its second-best annual performance since it
first traded in 2000.

Created in 2000 from disparate European assets, the company
was supposed to give the region an aerospace and defense
powerhouse to match U.S. competitor Boeing Co. While Airbus
pulled even with its arch-rival in commercial jet sales, defense
activities have languished amid slack government support.

“It’s an admission that market realities have left them no
choice but to drastically scale back,” said Richard Aboulafia,
vice president at the Teal Group in Fairfax, Virginia. “Their
home defense markets have collapsed.”

The measures should not be seen as a prelude to exiting
defense altogether, said Enders, a German national who at one
time ran the defense unit.

“Our traditional markets in Europe in particular are
down,” he said. “If we want to gain business in export
markets, we have to cut costs, we have to create operational and
market synergies.”

Export Competition

EADS faces tougher competition in export markets from U.S.
manufacturers looking to offset spending declines at home
through foreign sales, said Bernhard Gerwert, who will run the
new Airbus Defence & Space unit starting next month. The company
is still reviewing which activities to exit, he said.

Costs are too high in the space business, with the Space
Exploration Technologies Corp. Falcon rockets 30 percent cheaper
than an Ariane 5, he said.

EADS said it will put 1,000 to 1,450 people out of work,
depending on how many employees accept voluntary redundancy
packages that remain to be spelled out. Costs associated with
the cuts are still under review as EADS, which employees 140,405
staff, enters negotiations with workers.

The planned cuts come as EADS seeks to meet a 10 percent
operating margin by 2015, before including costs associated with
A350 jetliner and assuming dollar-euro exchange rate of $1.30.

Fewer Sites

The reductions will lead to “substantial” consolidation
of sites in Germany, France, Spain and the U.K., EADS said,
following an announcement in July that it would merge the two
divisions to reduce expenses. The measures will be implemented
through the end of 2016, with the aim of offering about 1,500
workers other jobs at Airbus and Eurocopter.

Enders had sought to address the imbalance between
commercial aircraft and defense operations through a merger with
BAE Systems Plc in 2012, a plan that broke down after objections
from the German government and some shareholders. EADS had sales
of about 56 billion euros in 2012, with Airbus contributing more
two thirds.

EADS, in which the French and German government hold direct
stakes, informed governments of the job losses ahead of
yesterday’s announcement, Enders said. Germany’s Economy
Ministry said it wants EADS to implement the cuts as
“cautiously” as possible and said it regrets the move.

In slashing jobs, EADS is catching up with announcements by
other defense companies. Lockheed Martin Corp., the world’s
largest, plans to eliminate 4,000 jobs and close four sites by
mid-2015, the company said last month. BAE Systems also has
undertaken a series of reductions and said last month it would
eliminate 1,775 positions as it ceases ship construction at the
historic Portsmouth shipyard in England.

“Even if European defense recovers in the long term, the
industrial base will look profoundly different by then,” Henrik
Heidenkamp, a research fellow at the Royal United Services
Institute said. “The cuts taken by EADS are a clear indication
that the European defense market has entered a period of
fundamental change.”